Commerce and Consumer Affairs Minister Kris Faafoi announced today the beginning of public consultation on a new regime to provide fairer outcomes for victims of Ponzi schemes.

A Ponzi scheme is a fraudulent investment scheme in which investors are paid false profits from the amounts invested by new investors.

“Ponzi Schemes don’t happen often in New Zealand but when they do, real harm is caused. Many of the people who become involved in Ponzi schemes are small investors unaware of the risks of the schemes, and many are likely to be investing savings or retirement funds they can ill-afford to lose.

“We can’t allow this to continue so I want to see if we can create a better way to liquidate where we need to in order to get fairer outcomes for all involved.”

The current corporate insolvency regime treats investors differently based on legal tests designed for business creditors, not investment fraud.

“Specifically, insolvency law isn’t designed to address investment schemes that are deliberately designed to defraud,” Mr Faafoi says. “Recent decisions in the courts have also raised wider issues about whether insolvency law provides an appropriate framework for resolving Ponzi schemes so it is timely to look at better ways to treat all investors fairly.”

Mr Faafoi says the updated regime will align to his aim of ensuring honest New Zealand business can thrive, and consumers are protected.

“Dealing with Ponzi schemes is not easy given the complexity – even deciding whether a scheme should be treated as a Ponzi is a consideration. How to treat different investors is also challenging – a boundary will have to be drawn and this will have an effect of creating winners and losers depending when different investment actions, withdrawing or investing for example, were taken.

“These challenges make it particularly useful for us to hear from the insolvency sector and anyone interested in how Ponzi schemes should be treated. I would urge anyone who has experienced a Ponzi Scheme or its effect to give us their view.”

The discussion paper and related documents are available here. Information on the work of the Insolvency Working Group is available here.